STIR: Strong Economic Data Poses Doubt On October Rate Cut
Fed rate cut pricing expectations moderated this week, following Indications that economic growth may be more robust than previously estimated.
- Around 5-6bp of cuts were priced out of the Fed funds futures-implied path through the next 2 meetings to end-year. Versus 45bp in reductions through the remainder of 2025, futures markets now price 40bp. Half of that retracement came Thursday at 0830ET, when Q2 GDP data, initial jobless claims, durable goods orders, and goods trade data all pointed to stronger GDP growth in Q3.
- October's rate cut is no longer such a sure thing as it seemed after the September Fed meeting, with a 25bp reduction now priced at 21bp (~84% implied prob), versus closer to 23bp (90+%) at the end of the prior week.
- Through the June FOMC, 77bp of cumulative cuts are priced, 13bp less than seen at the Sept 19 close, effectively removing a half a 25bp cut from the path over the next 6 meetings.
- There was a litany of FedSpeak over the course of the week, but with no new major inflation or labor market data to comment on and the September FOMC meeting communications still fresh in the mind, there were no lasting reactions.
| Meeting | Current FF Implieds (%), LH | Cumulative Change From Current Rate (bp) | Incremental Chg (bp) | Last Week's Close (Sep 19) | Chg Since Then (bp) |
| Oct 29 2025 | 3.87 | -20.8 | -20.8 | 3.85 | 1.9 |
| Dec 10 2025 | 3.69 | -40.4 | -19.6 | 3.64 | 5.7 |
| Jan 28 2026 | 3.60 | -48.2 | -9.5 | 3.52 | 7.5 |
| Mar 18 2026 | 3.50 | -57.9 | -9.7 | 3.39 | 11.0 |
| Apr 29 2026 | 3.44 | -63.7 | -5.8 | 3.32 | 12.0 |
| Jun 17 2026 | 3.31 | -77.4 | -13.7 | 3.17 | 13.4 |
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US TSYS: Late SOFR/Treasury Option Roundup: Mixed on Rising Volumes
SOFR/Treasury option volumes improved in the second half, flow mixed with large Oct 5Y put buyer in Tsys, SOFR options revolving around better calls. Underlying futures off early session lows with TYZ5 nearing initial resistance at 112-15.5 (High Aug 5 and the bull trigger), curves twist steeper with 2s10s +3.063 at 61.112 (near Mid-April levels last seen early 2022)., 5s30s +2.986 at 120.423. Projected rate cuts have gained slightly vs. early morning (*) levels: Sep'25 at -21.6bp (-21.4bp), Oct'25 at -34.6bp (-34.1bp), Dec'25 at -55.6bp (-54.4bp), Jan'26 at -69.1bp (-68.1bp).
- SOFR Options:
- +8,000 SFRZ5 96.50/97.00 call spds, 4.125 ref 96.235
- 5,000 0QZ5 97.50 calls ref 97.025
- +20,000 SFRH6 96.75/97.25 call spds, 8.5
- -5,000 SFRU6 95.50/98.25 call over risk reversals, 5.0 vs. 96.925
- -4,000 SFRH6 96.50 calls, 22.5 vs. 96.495/0.50%
- -5,000 SFRM6 97.00/97.50 call spds vs. 3QM6 96.87/97.37 call spds, 0.0 net
- -5,000 SFRZ5 96.00 puts, 4.5
- -2,500 SFRU6 97.75/98.00 call strip w/ 96.00 put vs. 96.87 straddle, 42.0 total (straddle sold over)
- Block, 5,700 SFRU5 96.00/96.06/96.18/96.25 call condors 0.5 ref 95.89
- +2,500 SFRU5 96.00/96.06/96.18/96.25 call condors, 0.5 vs 95.9175/0.05%
- 2,000 2QZ5 96.25/96.37/96.62 broken put flys, 4.5 ref 96.85/0.10%
- +2,000 0QU5/2QU5 97.12 call spds, 1.0 net
- 2,600 SFRF6 96.50 calls ref 96.475
- Treasury Options:
- Block/screen +50,000 FVV5 108.5 puts, 6.5-7.0 vs. 109-13.75/0.18%
- +12,000 wk5 TY 112.5 calls, 7 vs. 112-12/0.36%
- -3,000 TYV5 111/113.5 strangles, 29
- -2,500 TYV5 112.25 straddles, 120
- +4,000 TYX5 109.5/113 strangles, 48
- 4,000 TYV5 112.5/113/113.5 call flys
- +1,600 TUZ5 104.5/105.25 2x3 call spds, 13
- 1,900 USV5 111.5/112.5 put spds ref 113-30
- -2,500 USV5 111 puts, 23 ref 114-00
- +2,000 TYV5 109.5 puts, 4 vs. 112-00.5/0.08%
EURJPY TECHS: Trend Needle Points North
- RES 4: 177.08 2.000 proj of the Feb 28 - Mar 18 - Apr 7 price swing
- RES 3: 175.43 High Jul 11 ‘24 and a key medium-term resistance
- RES 2: 174.86 1.764 proj of the Feb 28 - Mar 18 - Apr 7 price swing
- RES 1: 173.02/97 High Aug 13 / High Jul 28 and the bull trigger
- PRICE: 171.40 @ 16:00 BST Aug 27
- SUP 1: 170.56 50-day EMA
- SUP 2: 169.73/45 Low Jul 31 / 23.6% of the Feb 28 - Jul 28 bull leg
- SUP 3: 168.46 Low Jul 1
- SUP 4: 167.46 Low Jun 23
EURJPY is in consolidation mode. The trend structure remains bullish and the cross is trading closer to its recent highs. Key support to watch lies at the 50-day EMA at 170.56. A clear break of the average is required to highlight a stronger short-term bearish threat. Moving average studies are in a bull-mode position reinforcing the primary uptrend. Key resistance to watch is the Jul 28 high of 173.97, a break would confirm a continuation of the bull cycle.
US TSY OPTIONS: BLOCK/Screen Oct'25 5Y Put Buy
- Appr +50,000 FVV5 108.5 puts from 6.5-7 in the last few minutes vs. 109-13.75/0.18%
